Loans Should Grow 9% in 2022, Notes Latest Trends Report

A new report is forecasting credit union loan growth of 9% in 2022 (even as the smallest CUs show negative growth), while the pace of deposits will slow and membership will rise slightly, according to CUNA Mutual’s Trends Report. 

The January Trends Report, which includes data through November 2021, shared credit union performance by category, including: 

Credit Union Lending 

Credit union loan balances rose 0.7% in November, above the 0.2% pace reported in November 2020. Driving overall loan growth was strong growth in adjustable-rate mortgages (3%) and credit card loans (2.4%). November seasonal factors typically subtract 0.22 percentage points from the underlying trend loan growth as winter weather slows auto and home purchases, CUNA Mutual reported. 

“Over the past 12 months, total credit union loan balances rose only 6.5%, below the 7.2% long-run 00average,” according to the Trends Report. “However, industry growth rates mask big disparities between large and small credit unions. In the year ending in the third quarter of 2021, credit unions with assets greater than $1 billion reported a 5.8% increase in loan balances, which was down from a similar period one year earlier.” 

During the same period, credit unions with assets less than $20 million reported loan growth of 0.4%, which is above the -3.5% pace set a year earlier, the Trends Report stated. “We expect overall credit union loan growth to rise to 9.0% in 2022,” the Report forecast.  

Consumer Installment Credit 

Credit union consumer installment credit balances (auto, credit card and other unsecured loans) rose 1.1% in November, above the 0.2% decrease set in November 2020, as consumer spending surged in the fourth quarter of 2021, according to the Trends Report. “Consumer installment credit grew 6.7% over the last year, which is above its 30-year average of  6.3%, but slower than the 8.9% rise in real estate loans.” 

“The strength in consumer installment credit comes as the mortgage refinance boom slows down, and fewer consumers are cashing out part of their home equity to pay off a higher rate credit card and auto loans,” the Trends Report observed. “Expect consumer installment credit to grow over 10% in 2022 as the pandemic runs its course.” 

The household debt service ratio (mortgage and consumer debt payments required to remain current on that debt as a percent of disposable income) rose to 9.2% in the third quarter, from the 9.1% reported in the second quarter, and above the record low of 8.37% reported in the first quarter of 2021, according to the Federal Reserve, the Report noted. 

“The record-low debt service ratio was caused by record-low interest rates and government stimulus checks, which were used to pay off debt,” the Report added. “Less spending on servicing debt is freeing up household income for spending on goods and services or to increase savings rates.” 

Vehicle Loans 

Credit union new auto loan balances fell at a -4.7% seasonally adjusted annual rate in November, significantly below the double-digit pace set during 2012-2018, “as we typically see during a post-recession period,” the Report stated. 

According to the Trends Report, four factors drove this decline.  

“First, members used ‘cash-out’ funds from mortgage refinances to pay off auto loans. Second, past is prologue and rapid loan originations two-to-three years ago precipitate larger loan balance amortization today,” the Report stated. “Third, new auto sales declined 0.8% over the last month and 19% over the last year, which leads to a corresponding drop in credit union new-auto lending. And, finally, rapid growth into indirect auto lending over the last few years has leveled off, leading to a drop in the growth rate.” 

Real Estate  

Credit union fixed-rate first mortgage loan balances grew 1.3% in November, above the 0.9% pace set in November 2020, according to the Trends Report data. 

Existing home sales rose 1.9% in November from October, but marked a 2% decline over the last year due to slightly rising interest rates. Fixed-rate mortgage loan balances are currently growing at a robust 17.8% seasonally-adjusted annualized growth rate, as credit unions choose to hold more of their first mortgage originations on their own balance sheet, the Trends Report stated. 

The contract interest rate on a 30-year, fixed-rate conventional home mortgage remained at 3.07% from October through November, but that rate is above the 2.77% reported in November 2020. 

Savings & Deposits 

Credit union savings balances rose 0.12% in November, slightly below the 0.13% gain reported in November 2020. Savings balances typically decline 0.2% in November due to recurring seasonal factors, according to the Trends Report. 

“Savings balances are currently growing at a robust 10.2% seasonally-adjusted annualized growth rate, which is above the 7% long-run average. Members are saving more than normal due to the continued negative effect of COVID-19 on members’ leisure and hospitality spending,” according to the Report. “The average credit union member was sitting on $13,675 in deposits in November 2021, up from $10,978 in November 2019, before the COVID-19 pandemic and the resulting three stimulus checks. This $2,697 in additional liquidity, a 25% increase, has provided members with significant additional spending power. These excess savings will reduce the desire of many credit union members to keep building their savings balances, which will ultimately reduce credit union deposit growth to below the 7% long-run average over the next few years. 

“Expect credit union savings balances to rise only 5% in 2022 and 2023, the slowest pace since 2013, due to lower COVID-19 fears, increased spending on leisure and hospitality, higher gasoline prices, and lower job and income insecurity,” the Report forecast.  

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